HEY G-20! HERE'S HOW YOU CURB PROTECTIONISM

September 28, 2009

A sensible reform for the G-20 meetings being held in Pittsburgh should be finding a way to curb protectionism, says Daniel Ikenson of the Cato Institute.

Citing a newly published paper from the Lowy Institute in Australia, the researchers say Australia's own successful experience should be used as an example. The Institute recommends that other countries adopt "domestic transparency" programs, which would essentially include analysis from an independent, apolitical board or agency that measures the real costs and benefits of proposed trade restrictions:

The findings of these independent reviews would be accessible to the public -- and probably published in newspapers and other popular media -- in advance of any decision to impose or reject the proposed trade restrictions.

The findings wouldn't legally bind the authorities to take any particular action, but would help chase from the shadows the real costs of protectionism, so that those ultimately making the decision know that the public at large is aware of the costs.

According to the Institute:

When a politician knows that he/she can benefit politically by imposing import duties, the costs of which are hidden in higher prices paid by consumers, who are unlikely to make the causal connection, there is a profound asymmetry of incentives and disincentives.

The politician is much more likely to choose to secure the political benefit of imposing duties since the costs are hidden.

But if light is shone on those costs, through domestic transparency initiatives, that asymmetry is reduced or eliminated.

Politicians, under these circumstances, can go back to the special interests and say how much they'd like to help out with a tariff, but the costs don't justify the measure.

And the protection-seekers know the politician's hands are tied because the public is aware of those costs.